Saudi Arabia and Russia signed an agreement on Monday to cooperate in world oil markets – but the cooperation does not include an immediate cut in production that some other oil producing nations want.
The agreement was struck between top Saudi and Russian officials currently at the G20 summit in the Chinese city of Hangzhou.
Deputy Crown Prince Mohammed bin Salman, Russian President Vladimir Putin in Moscow.
Saudi Energy Minister Khalid Al-Falih said the agreement would also encourage other producers to cooperate, while Russian Energy Minister Alexander Novak said the two countries “were moving toward a strategic energy partnership and that a high level of trust would allow them to address global challenges,” according to Reuters. But analysts disagree on the importance and impact of this agreement on energy markets.
According to CNBC, while some are skeptical of the move, several commodity analysts have said it is “important not to dismiss the deal and that this ‘baby step’ could actually be more important than it looks.”
“We believe that it is another indication of the duress that sovereign oil producers are enduring and raises the likelihood of collective action at the informal OPEC meeting later this month if prices trend lower and a recovery appears to grow increasingly elusive,” Helima Croft, global head of commodity strategy at RBC Capital Markets, said in a note Tuesday, CNBC reports.
The energy pact was signed three weeks before a highly anticipated summit of oil producers this month, but isn’t the first pact between Russia and Saudi Arabia this year. As the Wall Street Journal notes, the two countries struck a similar agreement earlier this year, but it fell apart in April in Qatar when the Saudis suddenly insisted that Iran take part.
News of the agreement sent oil prices roughly 5% higher on Brent, but subsequently futures fell as much as 1.7 percent in London on the news that the agreement didn’t include production cuts.
